Q291 :Sometimes an individual may find himself
having some money which he can deposit in a bank, and he may have
borrowed a loan to finance the purchase of his house. Is it permissible
to use the interest paid to him on these deposits in order to pay off
some of the interest charged on the house purchase loan?
A291 : There is no doubt that the argument for
setting off interest earned against interest incurred appears to be
strong and valid. However, the person who does this, gets involved in
two interest-based operations. He is actually taking interest from the
bank and paying it again to the bank. In other words, he deals with
interest twice. That is a case of double prohibition. While there may
be some netpelling reasons for a person to get a loan to finance the
purchase of a house, there is no netpelling reason for him to earn
interest by putting his money in a deposit account. If one has already
bought a house on mortgage and he is paying interest to a bank, he
should try to arrive at an arrangement whereby he can put money in the
mortgage account above the regular instalments and draw it again at a
subsequent date. I realize that banks do not like to do that because of
the increased administrative costs to them, but if you have an
understanding bank manager and you explain to him the situation from
the Islamic point of view, he may allow you to do so. This will mean
that the bank will charge you less interest when you have put some
money in your mortgage account. The interest will increase when you
draw some of what you have deposited. In this way, the bank is making
the set off directly and you are not involved in taking interest; you
are only paying it. [Added: Apparently, the bank manager may be forced
by the prevailing practices to refuse such a facility. In such a case,
one should indulge only in paying interest without resorting to
collecting interest. That is the least he can do to avoid double
prohibition.]
Our Dialogue ( Source : Arab News – Jeddah )